Monday, 16 September 2013

Paramathematical Theory II

"...the Technate's founders...didn't think that such and such arrangements for production and distribution would work, they knew."

- Poul Anderson, The Long Way Home (St Albans, Herts, 1975), p. 58.

Is this possible? I will:

(i) summarize an understanding of economics;
(ii) summarize Anderson's account of the Technate;
(iii) see whether (ii) is consistent with (i).

(i) Economics:
incessant competition forces firms to increase productivity by periodically reinvesting in newer, more expensive technology;
as investment increases, the rate of profit decreases;
when the rate is judged too low to justify large expenditure, investment stops;
economic slump with stockpiled goods, unemployed labor and bankrupted firms;
when a sufficiently high rate of profit has been restored, investment resumes but with bigger firms tending towards monopolies;
trade requires an infrastructure and laws, thus a state;
monopolies merge with the state (see Anderson's excellent sf political novel, Mirkheim).

(ii) The Technate:
Technon-owned industries fund the state;
individual members of the Ministerial class own farms, mines, factories and at least one restaurant;
Commoners work mainly in cities, some self-employed;
trades have uniformed guilds with long apprenticeships;
Ministers "'...encourage free enterprise...'" among Commoners (p. 64);
"The Technon gives the orders on how to balance population and production, so that the economy runs a smooth course.'" (p. 61)

(iii) Consistency?
I think: it is predictable that decreased rate of profit will cause cessation of investment and that investment will later resume with bigger firms but not when either of these events will occur. Unpredictable individual decisions and technological innovations affect when. Thus, encouraging free enterprise while ordering balanced production looks contradictory? And knowing that arrangements for production and distribution will work looks impossible? (I think.)

19 comments:

  1. Your view of economics seems Marxist or at best Keynesian; I'm a Georgist. My view of the economic cycle is that prosperity may lead to higher wages and higher interest on capital, but it has a strong tendency to lead to higher ground rents on land. The selling prices of land rise, reflecting increased rents, and also the expectation of yet further increases. Land prices rise and rise, and real estate investment looks like a sure thing, but land prices finally become unaffordable and unsustainable. They can't rise forever, and when they stop rising, they can't stabilize, since they were based on expectations of yet further increases. So they crash.

    Then people default on their mortgages, investments in building yet more housing (and office space, etc.) go sour, and the contagion of bankruptcy spreads. There's a crash and high unemployment. Finally land prices fall enough to be affordable, a new round of prosperity becomes possible, and the cycle repeats.

    That's the short version, of course, and it's only a theory of the so-called business cycle (actually the real estate cycle), not a theory of everything.

    I know that Poul Anderson had at least heard of Henry George by the early 1980's (Henry George gets a brief mention in The Devil's Game), but I don't have any reason to think that Anderson was a Georgist, and he might or might not have known about George at all when he wrote The Long Way Home.

    Regards, Nicholas

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    1. Hi, Nicholas!

      Very interesting, your comments about the economic thought of Henry George. I know too little to comment either about him or economics in anything like detail. But I do have Ludwig von Mises classic HUMAN ACTION and Henry Hazlitt's far more "popular" ECONOMICS IN ONE LESSON (hope I got the title right). And I agree with them and Poul Anderson on the sheer impossibility of socialism. A more or less free enterprise system, moderated by tort and contract law, is, I believe, the most practical and workable for mankind.

      Sean

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    2. I largely agree about free enterprise, which is one reason to favor land value taxation, which Henry George proposed. Milton Friedman wrote that he was not a Georgist, but he thought that land value taxation was the least bad tax. I think that it's a positively good tax, since it suppresses land speculation, and prevents real estate bubbles. Professor Steven Cord, a leading Georgist, said that it would be better to use a land tax to buy goods which would then be thrown into the sea with some voodoo ceremony, than not to have the land tax.

      The socialists and other leftists like to point out that great accumulations of wealth are often due to special privilege and unjust enrichment rather than hard work, and they have a point. In particular, great fortunes are often due to people acquiring land -- which they surely did not create by their own efforts -- through unethical means. I favor taxing away landed fortunes, and letting people be as productive as they like, and keep what they produce.

      Regards, Nicholas

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  2. Nicholas,
    Thanks. Obviously this needs more discussion. You seem to be describing a similar cycle but focused on land. Does Georgism sound a bit like Social Credit?
    I think a lot of people with different views accept that the rate of profit falls causing slumps but, of course, the disagreements are over what to do about it.
    Paul.

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  3. From the limited knowledge I have of Social Credit (I had heard of it before, and just took a quick look at the Wikipedia article on the subject), Georgism is pretty substantially different, both in its theoretical basis, and in what it proposes to do. I must say that I do not believe that a fall in the rate of profit causes slumps (and "profit" on what? On enterprises, or interest rates on capital, or ground rents returned on "investments" in land?)

    There is a point of similarity in that Douglas proposed paying citizens' dividends to people, financed by printing the money (if I understand correctly). George did not precisely propose to pay such dividends, but some modern Georgists favor doing so. They would be financed by taxes on land; George proposed to replace other taxes by a single tax on the value of land. This would enable us to abolish other taxes, and would also have a beneficial effect of its own, by putting a stop to land speculation.

    Regards, Nicholas

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    1. Hi, Nicholas!

      Thanks for your comments. I'll comment on what I most strongly disagree in your remarks. I would put more stress on how political interference can cause land based bubbles to end in diastrous slumps. Most recently, the efforts by such quasi governmental agencies as "Fannie Mae" and "Freddie" in the US to pressure banks into giving loans to persons who could not afford them and could not repay these loans was a BIG factor leading to the real estate crash in 2008.

      And I would find using the coercive powers of the state to impoverish people whose ancestors might or might not have obtained great wealth unethically far worse. Where is the justice in punishing people for the sins of ancestors centuries ago? Moreover, industrialists whose works and inventions were the foundations of their wealth certainly can't be said to have obtained wealth unethically.

      I favor taxing EVERYBODY at moderate rates for the legitimate needs of the state (defense, police, courts, etc.) and not use state power for social engineering. And that includes even land owners.

      Sincerely, Sean

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    2. Hi, Sean,

      I basically agree about Fannie Mae and Freddie Mac, but I don't favor that kind of intervention. Besides, we had real estate booms and busts before we had Fannie and Freddie, and before government, especially the federal government, was anywhere near as large in relation to GNP as it is now, so you can't blame Fannie and Freddie for everything.

      I agree that people ought not to be punished for the sins of their ancestors, but, to quote Henry George, "While a man ought not to be taxed with the sins of his ancestors, neither is he entitled to profit by them." (This was in the course of a written passage at arms between him and the Duke of Argyll, a noted anti-Georgist.)

      I don't propose to tax industrialists for their works and inventions, or impose payroll taxes on minimum wage workers, either. Did you know that the Empire State Building was built on leased ground? The people who paid for the cost of erecting the building paid someone else for the privilege of building there, and what did the landowner do to create the land, or make land in Manhattan so valuable? As one of George's followers put it, "Instead of paying rent to the landlord and tax to the State, why not pay rent to the State and no taxes?" By taxing land rents, we can cut taxes on honest labor and actual capital (most modern economists consider land to be capital, but the classical political economists did not). Let's tax everybody who uses valuable land according to their use of land, and not tax anybody for what he produces by his own efforts.

      Pray pardon if this is a bit confusing and over-condensed. You can do a bit of reading about George's thought if you're interested (Wikipedia, and then there are Georgist websites; I think some of George's own writings are available online, and he had the prose style of an angel).

      Best Regards,
      Nicholas

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    3. Hi, Nicholas!

      I did a quick google of Henry George, and I still find myself disagreeing with his views on things like single taxes and landownership. Far too briefly, it STILL amounts to using the coercive powers of the state to prevent people from using land as they freely and peacefully agree among themselves on how it should be used.

      Guess I'll remain basically an "Austrian" in economics!

      Sincerely, Sean

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    4. Hi, Sean!

      Please remember that people did not freely and peacefully agree to land titles as we have them now; they were created by governments, sometimes through outright military conquest, sometimes through confiscations following civil wars, sometimes through various legalistic skullduggery, sometimes through the appropriation of common land by nobles and gentry, etc. So I don't think we have any duty to regard land titles, or the right to hold land titles without payment of a substantial tax, as something holy and anterior to the power of the State.

      It is worth noting that in 17th century England -- to take one example -- the feudal duties by which landowners held their land, requiring them to make payments an perform services for the king, were abolished, except for a few ceremonial duties. Parliament then financed the government through higher taxes, partly on land, partly tariffs and excise taxes, as well as the hearth tax and later the window tax. The four shilling in the pound land tax imposed under William and Mary became less important as assessments were not updated, so other taxes became a larger share of government revenue. If Britain today imposed a substantial land value tax, as Lloyd George attempted back in the early 20th century, and cut other taxes, it could be called a return to a tradition which should never have been abandoned.

      Best Regards, Nicholas

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    5. Hi, Nicholas!

      Granted, the means used by many persons to obtain title to land centuries ago were often ethically dubious, to say the least. But, any society NEEDS to have stability and security of title in real property if is to function at all. Moreover, as time passed land would change hands many times. The LATER owners could not fairly be accused of obtaining land in bad faith or by bad means.

      And considering the kind of top heavy administrative state which has become, alas, the norm in the West, I have my doubts a land value tax alone could finance the state.

      Sean

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    6. Hi, Sean!

      I agree that stability and security of land title is valuable, but I wouldn't normally interfere with land titles. Mr. and Mrs. Smith could keep their title to the land beneath their home and yard; they'd just pay tax based on the value of the land, not the house, Mr. Smith's salary, and their taxable purchases. The Acme Widget Corporation would keep the title to the land beneath its factory; it would just pay tax based on the value of the land, not the value of the factory, or its profits on widgets it sells.

      I agree that later owners of land could not generally be accused of obtaining land in bad faith or by bad means, and I would not punish them, but neither do I believe them to be entitled to keep the land rents. Most people do not regard it as necessarily wrong to impose or increase an income tax, even if Mr. Jones, in good faith, invested his efforts in a long course of study or apprenticeship to qualify for a job with a high income. Most people do not think it necessarily and fundamentally wrong to impose or increase a sales tax, even if people earned money in good faith, expecting that they would be free to spend it without paying sales tax. Is there something uniquely wrong about imposing or increasing taxes on land?

      In answer to your second paragraph, if a land value tax alone could not finance the state, it would at least go a large part of the way, enabling us to make substantial cuts in other taxes. If we also reduced the size of the state, so much the better; and LVT might make this easier to do, since at least some of what the modern state does amounts to trying to clean up the mess resulting from the wrong kind of tax system.

      Best Regards, Nicholas

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  4. Nicholas,
    As I understand "profit": commodities, including labor power (ability to work), are bought and sold at their value but labor produces more than its value, thus the employer who has bought labor power accumulates surplus value = profit.
    The tendency of the rate of profit to fall and to adversely affect investment is an analysis that I think was made by Marx but is more widely accepted by economists, and for example by my father, a Conservative businessman.
    Paul.

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    1. Hi, Paul!

      Here you touch on a point where I have to disagree. I don't agree there is such a thing as "labor power." While I'm by no means an expert in the Austrian school of economics (as represented by scholars such as Ludwig von Mises), I agree with the "Austrians" that the real value of labor and goods lies in how much you are willing to pay for using those goods.

      I'm writing off the top of my head, so I should probably refer you to Ludwig von Mises' treatise HUMAN ACTION.

      Sean

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  5. Sean,
    Well, I defined "labor power" as "ability to work" and that does exist. A commodity is anything produced to be sold as against immediately consumed. I suggest that the value of a commodity is the amount of labor necessary to produce it. Anyone selling commodities at more than their value loses competitively to someone else selling the same commodities at their value. Thus, competitive pressure tends to result in commodities being sold at their value but this is just the general tendency, not what happens every time.
    The ability to work of a trained laborer required more labor (of his trainers) to produce it than that of an untrained laborer. So the labor power of a qualified apprentice has a higher value and he earns a higher wage or salary.
    Paul.

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    1. Hi, Paul!

      Thanks for your comments! I agree that the "ability" to work is certainly a factor. And, as you defined "labor power," it does seem to come close to what the Austrian economists say. Maybe it's merely the rather archaic term "labor power" which bothers me. It's not a term favored by economists such as Ludwig von Mises or Henry Hazlitt. Again, off the top of my head, the Austrian economists seem to put more stress on CHANGEABLE and SUBJECTIVE factors.

      Sean

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  6. My view, of course, is that labor power is bought at its value but creates more than that value and that the consequent "surplus value" is wealth and profit. New technology increases the productivity of labor but does not create surplus value which is why investment in new technology causes the rate of profit to fall.

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    1. Hi, Paul!

      But new technology, if it's SUCCESSFUL, increases over all wealth. That's why the real profit to be made in things like cars, cell phones, computers, etc., is to sell as low as possible and get your profits from the volume of sales you make.

      I'm sorry, but I don't really buy "labor power." To me, the Austrian economists make more sense, with their stress on the factors of change, variability, subjectivity, etc.

      Sean

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  7. Sean and Nicholas,
    This is proving to be a good long thread on economics. Please keep it going if you can!
    Paul.

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    1. Hi, Paul!

      Many thanks! Problem is, a really detailed discussion of economics would need to become rather technical and require quotes from works such as Ludwig von Mises HUMAN ACTION.

      Sean

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